Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Advanced Drainage Systems Inc. (NYSE:WMS) based on that data.
Hedge fund interest in Advanced Drainage Systems Inc. (NYSE:WMS) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare WMS to other stocks including Washington Federal Inc. (NASDAQ:WAFD), Fabrinet (NYSE:FN), and Select Medical Holdings Corporation (NYSE:SEM) to get a better sense of its popularity. Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_221556" align="aligncenter" width="386"] Richard Driehaus of Driehaus Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a glance at the recent hedge fund action surrounding Advanced Drainage Systems Inc. (NYSE:WMS).
Hedge fund activity in Advanced Drainage Systems Inc. (NYSE:WMS)
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WMS over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Stockbridge Partners was the largest shareholder of Advanced Drainage Systems Inc. (NYSE:WMS), with a stake worth $120.2 million reported as of the end of September. Trailing Stockbridge Partners was Impax Asset Management, which amassed a stake valued at $87.7 million. MIG Capital, Impactive Capital, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Impactive Capital allocated the biggest weight to Advanced Drainage Systems Inc. (NYSE:WMS), around 12.16% of its 13F portfolio. MIG Capital is also relatively very bullish on the stock, earmarking 5.18 percent of its 13F equity portfolio to WMS.
Judging by the fact that Advanced Drainage Systems Inc. (NYSE:WMS) has witnessed falling interest from the entirety of the hedge funds we track, it's safe to say that there were a few money managers that decided to sell off their positions entirely heading into Q4. At the top of the heap, Will Cook's Sunriver Management dropped the biggest investment of the "upper crust" of funds watched by Insider Monkey, valued at close to $18.3 million in stock, and Matthew Iorio's White Elm Capital was right behind this move, as the fund said goodbye to about $6.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Advanced Drainage Systems Inc. (NYSE:WMS). We will take a look at Washington Federal Inc. (NASDAQ:WAFD), Fabrinet (NYSE:FN), Select Medical Holdings Corporation (NYSE:SEM), and TC Pipelines, LP (NYSE:TCP). This group of stocks' market values are similar to WMS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WAFD,18,42649,-1 FN,22,132983,-3 SEM,18,106537,-3 TCP,2,9665,-1 Average,15,72959,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $369 million in WMS's case. Fabrinet (NYSE:FN) is the most popular stock in this table. On the other hand TC Pipelines, LP (NYSE:TCP) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Advanced Drainage Systems Inc. (NYSE:WMS) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on WMS as the stock returned 64.5% so far in Q2 (through June 10th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.